Desert Island Retail

Thankfully, I don’t fly nearly as often as I used to. I’m okay with flying–it’s the airports I have a problem with. No matter how uncomfortable a four-hour flight on Southwest may be, it’s still preferable to the endless, serpentine Security line.

Though waiting and finally getting through the metal detectors is rarely an airport highlight, I can think of one group of people who are extremely grateful for the work the TSA does (no matter how many water bottles and toenail clippers the TSA confiscates). That group is the retail sector.

After all, the TSA keeps airline passengers captive until (hours later) their plane finally begins boarding. For retailers, few things are more desirable than a captive audience. Where but airports (okay, and movie theaters, and theme parks) can you find sodas selling for $5 apiece?

While the freedom to charge exorbitant prices for simple comestibles provides a great advantage for companies that operate airport terminal retail, it hasn’t caused these operators to become complacent. In fact, some are now working to emulate the strategies of North America’s most successful, high-end shopping malls, bringing in the sort of luxury retail associated with Fifth Avenue.

In December, GlobeSt. reported that Los Angeles International Airport, through a collaboration between the city, airport management, and retail operator Westfield Group, were developing a new retail and dining area to feature more than 60 new tenants. The renovated Tom Bradley International Terminal at LAX will supplement the traditional airport retail–Borders Express, newsstands, fast food–with more high-end options. GlobeSt. reports,

In planning such high-end retail for a transportation hub, Westfield is probably assuming, If they’ll spend $8 for a small sandwich–why not 800 for a limited-edition handbag?

If you drop a bunch of potential customers on a deserted island, and give them few other options, will they shop at a Bvlgari and Michael Kors?

Maybe, but keep in mind, this project is at no ordinary airport. This is LAX, which sees a higher-than-average number of patrons likely to buy an $800 handbag on a whim. This project would likely prove less successful in other cities.

If nothing else, Westfield’s endeavor highlights the importance of location for retail–traditional or boutique. It should be no surprise that many other airports, including those in Philadelphia and Denver, have performed significant overhauls of their own retail offerings in recent years.

Unfortunately for most real estate/retail operators, the “desert island” of an airport shopping concourse has a very high barrier to entry. As this article by Specialty Retail Report explains,

Most airports in the United States are governed by municipalities, counties or port authorities whereas malls tend to be privately owned… Airport leasing often involves going through a solicitation process which is governed by federal, state or local procurement codes. Malls, on the other hand, can negotiate lease terms directly with their tenants.

No wonder major retail REITs like Simon Property Group (NYSE: SPG) and General Growth Properties (NYSE: GGP) are sticking to traditional shopping malls; the process of dealing with local bureaucracies to gain contracts, then giving up a great deal of autonomy to operate this property–makes this sub-sector worthwhile to only the most specialized, experienced operators.